Equity and Effectiveness of Optimal Taxation in Contests under an All-Pay Auction

Yosef Mealem and Shmuel Nitzan

No 3712, CESifo Working Paper Series from CESifo

Abstract: The means of contest design may include differential taxation of the prize. This paper establishes that, given a revenue-maximizing contest designer who faces a balanced-budget constraint, the optimal taxation scheme corresponding to an all-pay auction is appealing in two senses. First, it ensures exceptional equitable final prize valuations. Second, it is effective; it yields total contestants’ efforts that are larger than those obtained under almost any Tullock-type lottery. Furthermore, when a budget surplus is allowed, the superiority of optimal taxation under the APA is preserved in terms of equity and effectiveness relative to optimal taxation under any contest success function.

Keywords: contest design; revenue maximization; balanced-budget constraint; budget surplus; optimal differential taxation; endogenous stakes; all-pay auction; lottery (search for similar items in EconPapers)
JEL-codes: D70 D72 D74 D78 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Equity and effectiveness of optimal taxation in contests under an all-pay auction (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3712

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